Bankers Take Center Stage as Policy Decisions Loom

The waiting is almost over. Within the next 24 hours, investors will finally learn what the Federal Reserve and the Bank of Japan think about the economic outlook – and more importantly, what they’re going to do (or not do) about it.

First up is the BOJ. Repeated rounds of QE, purchases of everything from bonds to REITs to stocks, negative interest rates, and more haven’t pushed inflation to the BOJ’s 2% target.

You’d think that after three-and-a-half years of failure, Governor Haruhiko Kuroda would just admit this stuff doesn’t work. But alas, reality doesn’t appear to have settled in over there yet. So the BOJ promised last month that it would launch a “comprehensive assessment” of its options, and report the results to everyone after the policy meeting that concludes tomorrow morning.

Economists and central-bank watchers are all over the map when it comes to what to expect. That’s in part because multiple media leaks out of Japan in the past several days suggest all kinds of things are on the table.

They include switching from a fixed-asset buying target to a monthly range … to changing the time frame on the bank’s inflation target … to cutting interest rates deeper into negative territory, but shifting asset buying to the shorter end of the yield curve to cushion the negative impact on banks. Or the BOJ could do absolutely nothing.

Shortly after the BOJ announcement hits the tape, the Fed will weigh in with its own interest rate news. But it will be a much more straightforward affair – with the only two choices likely being a 25-basis-point rate increase or no move.

It would be a pretty significant move for Janet Yellen to implement a hike.

Interest rate markets are only pricing in about a 15% possibility of a hike. So it would be a pretty significant move for Janet Yellen to actually implement one. Expectations are higher for a move at the December meeting at around 45%. But that could easily change depending on what the Fed does, then on what Yellen says at her post-meeting press conference later in the afternoon.

From a market perspective, the meetings come at a point of indecision and uncertainty. The major averages broke down out of an extremely narrow, two-month range a few days ago. That breakdown was accompanied by a surge in volatility.

Now, the key question is whether more turmoil lies ahead … or if this will just prove to be a minor hiccup. I come down on the pessimistic side of the debate, given my read of where we are in the credit and economic cycle. But we’ll see what policymakers say and do tomorrow, and how markets react.

So what are you expecting tomorrow? How do you think various potential policy moves will impact stocks? Are we setting up for a fall swoon? Or a strong run into year end? Let me know which way you’re leaning when you get a minute.

Our Readers Speak

On the terrorism front, the investigation continues into the man behind the latest attacks. But many of you weighed in with your thoughts about the bombings in the meantime.

Reader Phil H. said: “I don’t know about our intelligence agencies and police, but there is a great deal that Obama could have done to prevent this. He could have demanded full vetting of every Muslim seeking legal immigration (particularly Sunnis who are responsible for 90+% of all terror incidents). Instead of overruling enforcement efforts by the Border Patrol and all of the INS, he could have commended them and taken harsh action against violators – just like they do in almost all of the civilized world.”

Reader H.C.B. said: “Who let these various terrorists into the country in the first place? Is there no accountability in the U.S. for the immigration process and for those who sign-off on admitting certain individuals into the country and issuing them a visa?

“The whole system needs to be fixed and a ‘new broom’ put in charge. Heads should roll. We need some real accountability instead of mindless bureaucracy.”

Meanwhile, Reader John said: “What can we do? Well, first off we can quit being frightened by every headline that tends to spur us into doing something stupid. Violent crime has dropped in recent years (which doesn’t make for exciting reading). But listening to political rhetoric, you’d think we’re all on the verge of being overrun. Nonsense.

“Frankly, we Americans shoot each other at a rate of about 30,000 per year, which makes terrorism deaths quite low by comparison. You want less terrorism, both domestically and internationally? Then work for more justice and less inequality. Terrorism, sadly, is not going away. But building bigger walls and bombing more civilians is only going to throw more petrol on the fire.”

Finally, Reader Barb said: “People have to be aware of their surroundings at all times and report whatever doesn’t seem normal or legal, even if the reception from the cops doesn’t seem receptive. Without the eyes and ears of the public, there is no way law enforcement can stop all that much if it is coming from self-radicalized or mentally off individuals acting alone, especially if they are American citizens.”

Thanks for sharing your thoughts. If there’s anything else you want to add, be sure to do so in the comment section.

Other Developments of the Day

Now that Ahmad Khan Rahami has been taken into custody, investigators are digging into his past to find out what prompted him to allegedly plant bombs in multiple New Jersey and New York locations. Some believe he may have become radicalized during trips to Pakistan or Afghanistan, and they note that his family had past issues with local police. They reportedly sued the Elizabeth, N.J. police department for harassment in 2011.

Wells Fargo (WFC) CEO John Stumpf got hauled in front of Congress to testify today in the wake of the bank’s cross-selling scandal. The bank agreed to pay $185 million to regulators and fire 5,300 workers after it was reported they fraudulently opened up accounts without the knowledge of customers just to meet aggressive sales targets. Stumpf hasn’t given any indication he will step down, but he took a verbal beating in D.C.

The “Everything Bubble” reached into virtually every corner of the asset markets. That includes art, where prices of both classic and modern works soared in value as money flooded in.

But the tide is now ebbing, according to Bloomberg. The story chronicles how some modern paintings have plunged 80% to 90% in value since the peak of the market in 2015. And on it goes.

Do you have any additional thoughts on the latest homegrown terror attacks? What about the Wells Fargo banking scandal, or the apparent collapse in the high-end art market? You know the drill – the comment section is open for business below.

Until next time,

Mike Larson

Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.

Wells Fargo fires 5200 people who were only doing what they thought was expected of them. The execs continue to get their bonuses.

A AireyTuesday, September 20, 2016 at 5:36 pm

Don’t forget home grown converts.Several centuries of experience would suggest that new converts might well take things more seriously than someone brought up in the faith – religious or political.The incident in the South of France bears watching.Unless you’ve got IRA connections,which is why the Boston incident didn’t get a lot of sympathy on this side of the pond,obtaining explosives and making bombs requires a certain amount of expertise,which,if you’re getting it off the net,ought to alert the security agencies if they’re doing their job.Getting hold of a lorry and driving it into a crowd is much simpler.
cheers
Andy Airey

John AdveyTuesday, September 20, 2016 at 6:02 pm

English periods at the end of a sentance. How about who and whom??)

TomTuesday, September 20, 2016 at 6:05 pm

Why the FED would raise rates before the election is hard to figure. They have been behind the curve for years. I am kind of thinking that maybe the economy is stronger than the GDP figures say. I don’t think that current methods of computing GDP are all that accurate. Maybe growth is about a half of percent better than GDP shows. But still nothing to get excited about. I think the economy could do better without endless interference from big government and mindless meddling from a FED that is fairly clueless. Japan? Their big problem is a demographic squeeze. The numbers just don’t look very hopeful for many decades. The BOJ will not make much headway in resurrecting the economy; especially using off-the-wall tactics which are mostly unproven.

RandyThursday, September 22, 2016 at 11:07 am

Does it seem like a continuous bad economy to you?

You mention government meddling, good point. That is the main reason we can’t solve the ongoing problem with the economy all over the world. Never before have we had so many governments, along with the central banks, tinkering and experimenting with their economies thru policy, instead of benefiting from a free market policy based on true supply and demand.

Artificial stimulation of particular parts of an economy can and does produce an artificial fat spot in one sector of an economy. That sector collapses, because it’s lopsided, or out of balance with the real economy. This has stemmed from out-of-control gov spending, and central bank laundering schemes. Every Government and Central Bank on the planet is tweaking, and pumping, money, influence, and special deals for special people. It is corruption at its finest hour.

The problem is only spreading, and always ends in disaster. All of the recessions over the past 50 years, that I remember, successively get more costly each time we have one. And I think, will get progressively worse at each coming event, until such time, more stimulus and can kicking, no long works.

We’ve had recessions every 10 years for the last 50 years, now we have recessions that last 10 years. The fix is to stop fixing it.

linda griffithTuesday, September 20, 2016 at 6:06 pm

frustrating and enervating. there is a reason this is the most hated rally in the history of the stock market. If they refuse to let stock prices correct then the Fed will end up owning everything – all stock, all real estate, all bonds. the whole monte. the endless destruction of money and the rampant inflation in both asset prices and the prices of everything humans need to stay alive has effectively shut the middle class out of the markets . housing prices were speculated into the stratosphere, and instead of allowing prices to come down to earth, where they had some relationship to income and where people could actually afford them without burying themselves in debt, the fed conspired to hold prices at insane levels via qe. and what was the result? the banks and hedge funds and the 1% now own most of the real estate in the US and half of all americans have become renters. Whether the Fed raises one quarter of a point in December or not is a question nobody cares about since it will make no difference in our lives. It will not give us any interest on our savings. It is just boring.

WasteLand WarriorWednesday, September 21, 2016 at 7:31 am

And they used money that they printed out of nothing to buy all these assets that they now own and are buying more until they own everything…then they will raise interest rates to make the rest of the people default on their “borrowed to the limit” loans and foreclose…Then they will really own “everything”..It is absolute pure evil criminal theft pure and simple…And we just gobble it up and accept it. I can’t believe how stupid and complacent we all are! It never ceases to amaze me!

stevenTuesday, September 20, 2016 at 6:48 pm

We are waiting for his Stumpf speech, now that his tree has been cut down and all that remains is the Stumpf.

Chuck BurtonTuesday, September 20, 2016 at 7:02 pm

The FBI says that Rahami wasn’t on their radar, yet his own father apparently turned him in to the Feds a couple of years ago. Heads should roll in that agency. One thing did seem to work well – a cell phone alert system seemingly caused a woman to report the bomb that didn’t go off in New York, and the bar owner reported Rahami hanging out on his premises, leading to the gun battle and his capture. Enlisting the help of the public may have saved lives, in this case.

Chuck BurtonTuesday, September 20, 2016 at 7:10 pm

On the other hand, didn’t the NAZIs enlist public help in reporting various suspicions in Germany. There is a thin line between freedom and totalitarianism, and we need to be wary about crossing it. In Rahami’s case though, public help was sought for an active case, and that seems reasonable, just as it would be in a Yellow Alert for an abducted child.

Chuck BurtonTuesday, September 20, 2016 at 7:34 pm

By the way, on another subject, I just saw a report from someone identifying as an exhibitor in the International Manufacturers and Technology Show in Chicago, that his distributors say their phones are dead, email is slow, and business is hurting. Yet the Fed says things are improving. What are they smoking? What will they do this week?

StuTuesday, September 20, 2016 at 7:35 pm

HORRORS!!!! An interest rate increase of one quarter percent!! Money has to have a value.!!! These rates, or the lack thereof, have created speculative spending and investments instead of those based on legitimate responsible business decisions. If we can’t deal with a minimal increase such as this without everyone getting their panties in a bunch, then we are in real trouble. I believe our economy would have greater stability if we had consistent rates in the four to five per cent range and get the Fed out of the business of trying to control the economy with their ineptness.

jay trowTuesday, September 20, 2016 at 8:15 pm

NO RATE INCREASE !!! MARKETS,GOLD AND SILVER HIGHER,,,,,,DECEMBER, TOO EARLY TO TELL !
MIKE,WHAT ARE YOU THINKING ABOUT AS FOR CHINA CURRENCY AS A RESERVE WORLD CURRENCY ON OCT.1RST. WHAT WILL HAPPEN ???

tTuesday, September 20, 2016 at 8:26 pm

So 5,300 working slaves at Wells Fargo do what management told them to and get issued pink slips and management keeps their commissions and jobs. A day of reckoning will come.
As for art, a fool and his money are easily parted.

jay trowTuesday, September 20, 2016 at 8:38 pm

GOT TO GO TRUMP.HE IS THE ONLY SHOT AT CHANGE….OTHERWISE IT JUST GETS WORSE…ON TERROR MUCH WORSE.GOV’T JUST SAID 900 BAD PEOPLE JUST GOT
CITIZENSHIP BY ERROR !!! IF JUST 1% ARE KILLERS-WE HAVE 9 NEW KIILER TERRORISTS READY TO KILL IN USA….BUT LOOK AT THIS !!!……………………………………U.S.
U.S.GOV’T JUST SAID THEY WILL TAKE IN 180,OOO SERIAN REFUGEES IN 2016 !!!! IF THEY F….UP AND ARE WRONG ON VERY TIGHT VETTING(SCREENING) JUST 1% OF THOSE 180,000 NEW REFUGEES,WE WILL NOW HAVE…..1800 NEW KILLER TERRORIST IN THE USA READY TO KILL….GOOD GOD !!!! PEOPLE PLEASE PRINT AND SPEAKOUT,AND SCREAM !!! NO WONDER 1/2 OF THE WORLD NOW LAUGHS AT US…….PLEASE SPEAK OUT AND BE HEARD !!! JAY TROW.

StuTuesday, September 20, 2016 at 8:39 pm

I’m 99.99% confident that Yellen (a Democrat) won’t raise rates. Doing so would throw markets into turmoil and essentially give Trump the keys to the White House. I think any language she uses will be dovish as she knows data indicates the economy continues to weaken. She wants this Fed announcement to be the catalyst that lifts the markets to new highs before the election. We’ll see what happens. Jmvho.

As an aside: Mike, I enjoyed your opening roundtable talk and seminar at the Toronto Moneyshow last weekend. The event was a big success!

zachary baileyTuesday, September 20, 2016 at 8:50 pm

Just to correct reader John’s comment, yes indeed 30,000 gun deaths occur each year in the U.S., ,but 20,000 are suicides. My guess is if guns weren’t around it would be overdoses or jumping off buildings, so don’t blame the guns!

CarlWednesday, September 21, 2016 at 10:20 am

Almost all gun deaths are people shooting people they know. Most people aren’t worried about that, they are worried about getting killed by strangers – i.e. terrorists or random gunfights.

I doubt we’d even care if we didn’t have terrorists and criminals only shot criminals.

TomTuesday, September 20, 2016 at 9:21 pm

Will they raise, will they not! We have been at this for 6 months or more. Seems like the economy is on edge and business cannot plan for the future. This is what is dragging the US and has us at a standstill. Just too much government in all our lives. What a conundrum we are in. It will not end well. We will see negative interest rates in the US within the next two years.

Robert CalabrtoTuesday, September 20, 2016 at 9:36 pm

Mike: There will be no rate increase tomorrow. Janet Yellon is a democrat and she will do nothing to jeopardize the election. There will be a rate increase in December. The increase will be .25%. This small rate increase will do nothing to alleviate the suffering of savers which the Federal reserve has ravaged. Since QE started savers have lost 8 trillion dollars of interest payments on their CD’s, passbook savings and money market accounts. QE is a failure. It was nothing more than a back door bailout of wall street and the Federal Government. Regards, RC.

louTuesday, September 20, 2016 at 10:52 pm

I had been reading bad stuff about Wells Fargo for awhile and when they gave me a hard time about a $4k withdrawal I closed all my accounts (a significant amount) and moved it all to another bank. This was just last week. Didn’t hurt them but made me feel good.

RajWednesday, September 21, 2016 at 1:09 am

Americans should wake up and smell the coffee. Having an external threat to blame is just the excuse gun lobbyists want to deflect attention from the stark reality that swathes of America is armed for a rerun of the wild west. Have people already forgotten about the hundreds shot dead in mass shootings over the decade?

gordonWednesday, September 21, 2016 at 2:25 am

Yes Stumpf took a verbal beating in DC thanks mostly to that lady that should be running for president Elizabeth Warren. A big round of applause please!!
Your verbal vomit moment of the day. What a piece of work this Stumpf guy is. Incredible.
Stumpf also said for the first time that Tolstedt’s exit was tied to the fraud at the bank. In the past, Wells Fargo has said that Tolstedt departure was not related to the CFPB settlement, and that she retired for personal reasons. In announcing her retirement in July, Stumpf praised Tolstedt’s in a press release saying she was “one of our most valuable Wells Fargo leaders, a standard-bearer of our culture, a champion for our customers, and a role model for responsible, principled and inclusive leadership.”

gordonWednesday, September 21, 2016 at 2:30 am

At the top of mount Arrogance Mr. Stumpf’s reply
“No I have no intention of resigning.”
I am truly flummoxed by this whole charade. I guess at this point all the donations that Wells Fargo has made to the Republican party in the past will finally bear fruit.

CarlWednesday, September 21, 2016 at 10:25 am

Yup, Wells Fargo has contributed $2.9M to Democrats and $4.3M to Republicans over the years. We’ll see how that pays off for them…

gordonWednesday, September 21, 2016 at 3:11 am

This warms the cuckolds of my heart. This is only the start of the chickens coming home to roost.
But the tide is now ebbing, according to Bloomberg. The story chronicles how some modern paintings have plunged 80% to 90% in value since the peak of the market in 2015. And on it goes.

CarlWednesday, September 21, 2016 at 10:27 am

Metaphor much? Since you like them, you might want to correct one to “cockles of my heart” – cuckold means something ENTIRELY different.

Jim BandinelliWednesday, September 21, 2016 at 7:54 am

The CEO of WF takes full responsibility in front of our feckless congress , but claims he had no idea this was occurring, how does that work? Baffling would be an understatement. Friends don’t let friends go to jail, that’s how it works in government! As for Yellen, its to late and she knows it, if you up the interest rate the this government shoots to 24 Trillion debt overnight as our payment on the debt consumes our already bloated yearly deficit spending. Good bye welfare, and the 2.7 million government flunkies, who are paid through government extortion of working Americans,… gone! Talk about being pinned in a corner, the FED is dead, they just don’t know it yet. What a miserable failure our government has become.

Andrew MichyetaWednesday, September 21, 2016 at 9:49 am

This government believes capital formation is evil, therefore as far as their view of things, this is good news.

CarlWednesday, September 21, 2016 at 10:31 am

I’m disgusted with “taking responsibility.” If that were true, then throw them in jail! It’s literally an admission of guilt, IMO.

But the phrase is considered meaningless by those in charge, meant only to diffuse anger from those affected and make the problem go away – where “problem” means public attention to wrong-doing.

johnWednesday, September 21, 2016 at 11:00 am

The people in st. Louis who make Epipen are about to go out on strike..many make less that 20 an hour. And Mylan. Makes how much per pen? The offer 2to 3 percent ?

JamesWednesday, September 21, 2016 at 12:38 pm

Does coach Bill Hall have any tips on this weekends NFL games I have lost the last two weekends in a row?